Rigging trade with China

US “presssure(link to a sto­ry on SFGate)”:http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/01/04/EDGQV3KFI41.DTL on Chi­na to re-bal­ance bilat­er­al trade flows and re-val­ue the ren­min­bi is a depress­ing­ly famil­iar sto­ry. Through the 1980s we heard vir­tu­al­ly iden­ti­cal com­plaints about Japan (and the Yen), accom­pa­nied by delu­sion­al ‘trade war’ rhetoric from the Rea­gan Admin­is­tra­tion and a flur­ry of futile and cost­ly import bar­ri­ers (on semi-con­duc­tors, steel and cars). Japan, it was claimed, had unfair­ly used ‘admin­is­tra­tive guid­ance’ to devel­op its com­pet­i­tive strengths which it sus­tained by manip­u­lat­ing the yen-dol­lar exchange rate (to the immense joy of US investors). Now, Chi­na, is alleged­ly using com­mu­nist cen­tral plan­ning for the same pur­pose. ‘Non-mar­ket economies’ (NMEs) come in for a lot of pious jaw­bon­ing. But even more obnox­ious is the pres­sure placed on them to rig bilat­er­al trade. When the economies con­cerned in this bilat­er­al trade are the world’s biggest and most rapid­ly grow­ing economies the rest of us should pay close atten­tion. It is remark­able that the trou­ble­some inter­fer­ence of gov­ern­ments in mar­kets for light maun­fac­tures such as tex­tiles or auto­mo­bile parts or con­sumer elec­tron­ics is not con­sid­ered such a prob­lem when it applies to ser­vices such as the sup­ply of physi­cians or to elec­tric­i­ty sup­ply or to the num­ber and loca­tion of gas sta­tions or to the sup­ply of “defence-relat­ed” goods such as wide-bod­ied air­craft and jet engines, super-com­put­ers or even rail­way engines in coun­tries like UK or the USA or Japan or Aus­tralia. The dif­fer­ence between ‘cen­tral plan­ning’, ‘admin­is­tra­tive guid­ance’ and ‘social democ­ra­cy’ is all a mat­ter of degree, it appears—very small degrees in some cases—and depends on whether you’re one of us or one of them. Still more hyp­o­crit­i­cal, how­ev­er, is the implic­it deal that lies behind the threat of trade bar­ri­ers to NME import com­pe­ti­tion. There are no per­ma­nent pro­vi­sions for such bar­ri­ers in the WTO Agree­ments but they have a promi­nent, tem­po­rary, role in the Chi­na Pro­to­col of Acces­sion to WTO and may be invoked by any coun­try in some cir­cum­stances as part of an anti-dump­ing or anti-sub­sidy (‘coun­ter­vail­ing duty&#8217)investigation. The recent US tex­tile safe­guards[⇒ relat­ed sto­ry] are sanc­tioned by the non-mar­ket econ­o­my pro­vi­sions of the Chi­na Pro­to­col. Like every oth­er ‘con­tin­gent’ bar­ri­er sanc­tioned by WTO, these pro­tec­tion­ist mea­sures do their work not by ‘restor­ing bal­ance’ to com­pe­ti­tion in trade but by a much more insid­i­ous impact on mar­ket behav­iour. One the one hand, they encour­age ‘vol­un­tary’ export restraints. The alleged NME exporter (or alleged dumper) will often find it prof­itable to vol­un­tar­i­ly com­ply with a quan­ti­ta­tive restric­tion on exports (such as the QR’s placed on imports of Chi­nese gar­ments by the US safe­guards) in cas­es where demand in the export mar­ket is suf­fi­cient­ly inelas­tic. Japan­ese auto mak­ers such as Hon­da and Nis­san famous­ly prof­it­ed from the ‘vol­un­tary’ restraints imposed on them in the 1980s in the US mar­ket. On the oth­er hand, they encour­age implic­it pref­er­en­tial pur­chas­ing: the use of cen­tral­ly planned pur­chas­ing pow­er to favor sup­ply from coun­tries threat­en­ing to use NME bar­ri­ers on imports. Accord­ing to the “BBC”:http://news.bbc.co.uk/2/hi/business/3366983.stm bq. Chi­na has been attempt­ing to counter wor­ries about the trade gap with two recent Buy Amer­i­can mis­sions to the US to pur­chase com­modi­ties and man­u­fac­tured goods includ­ing jet air­craft and car fleets.

Peter Gallagher

Peter Gallagher is student of piano and photography. He was formerly a senior trade official of the Australian government. For some years after leaving government, he consulted to international organizations, governments and business groups on trade and public policy.

He teaches graduate classes at the University of Adelaide on trade research methods and the role of firms in trade and growth and tweets trade (and other) stuff from @pwgallagher